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Five Factors That Impact Your Credit Score

December 07, 2022

Your credit score is a three-digit number that plays an important role in qualifying you for everything from loans and credit cards to apartment rentals and some insurance policies. It usually falls between 300 and 850 (a higher number is better) and its calculation has a lot to do with the five factors explained below.

1. Your Credit Payment History

Payment history is the number one factor that potential lenders check to assess risk. It usually makes up 35% of your credit score.

Have you paid all your bills on time? Fantastic. Your excellent payment history will raise your credit score. However, any late payments will lower your credit score. In fact, just one late payment can lower your credit score between 100 and 150 points. Then it can take one to two years to regain those lost points.

Are you an individual who has no credit payment history? Don’t worry. Having no history may be better than having a bad history. That’s because building credit is easier than fixing a poor credit history.

2. Amounts You Owe

When it comes to credit cards, financial experts often recommend using only 30% of your credit limit. For example, if you have a credit card with a $10,000 credit limit, then you should use only $3,000 of that amount.

Plus, you should make monthly payments in a consistent manner to lower your total debt. This is much better than carrying your debt month to month and only paying off the interest fees. (That approach will likely do little to improve your credit score).

3. Length of Your Credit History

The longer the history, the more attractive it is – especially if it is a positive history. For example, suppose you had obtained a credit card ten years ago and then always used that card responsibly. Then you would have a nice long history with your credit card company. That long history would help boost your credit score.

4. Newer Credit

Your credit score will go down immediately any time you open up a new credit card or get a new personal loan. So, don’t do either of those things right before you apply for a car loan or a mortgage loan. When you are ready to buy a car or a house, you want your credit score to be as high as possible.

5. Types of Credit You Have

When mortgage lenders look at a person’s credit history, they also look at the types of credit used. Those types include revolving credit and installment credit.

Revolving credit refers to credit cards. Installment credit refers to car loans and personal loans. Typically, lenders like to see that a potential borrower has had at least one line of each type of credit. Then they can examine how well that person handled both types of credit.

Do You Want to Get on the Road to Owning a Car or Home?

Building a more perfect credit history is key to making that happen. However, at Heartland Bank, we understand that financial situations can be very unique from one to another. It's why we offer our Money Matters Small Dollar Loan Program, which can assist you in building or repairing your personal credit.

Interested? Sign up for a class - offered year-round, both online and in-person!


This content is for informational purposes only. Readers should under no circumstances rely upon this information as a substitute for their own research or for obtaining specific advice from their own counsel.